What are the economics of climate change? (with Governor Jay Inslee and Fadhel Kaboub)

All the economic and social policy that we discuss on this podcast won’t matter if we don’t address climate change. Governor Jay Inslee and Professor Fadhel Kaboub join Nick and Goldy to explain that if we don’t get climate right… well, the pitchforks are coming.

Jay Inslee is the Governor of Washington state. In March of this year, he announced he is running for president on a platform of combating climate change.

Twitter: @JayInslee

Fadhel Kaboub is President of the Global Institute for Sustainable Prosperity, and Associate Professor of economics at Denison University. His research focuses on the political economy of the Middle East, and the fiscal and monetary policy dimensions of job creation programs.

Twitter: @FadhelKaboub

Speaker 1: The fight over climate change becomes a really great way of seeing how neoclassical economics and Neo liberalism leads you down the wrong path.

Speaker 2: Do we say who are we going to tax the spend on the military? That never comes up, but when it comes to funding the Green New Deal, then who are we going to tax?

Speaker 3: Let’s be practical. Let’s not allow the destruction of the nation. That is a practical thing. Look, when your house is on fire, you got to grab some buckets and put [00:00:30] the fire out.

Speaker 4: From the offices of Civic Ventures in downtown Seattle, this is Pitchfork Economics with Nick Hanauer in honest conversation about how to make capitalism work for everyone.

Nick Hanauer: I’m Nick Hanauer, founder of Civic Ventures.

David Goldstein: I’m David Goldstein, [00:01:00] senior fellow at Civic Ventures. Hey Nick, we’ve spent a ton of time on this podcast talking about economics, talking about what’s wrong with neoclassical economics, and neoliberalism and how a better understanding of how the economy leads to better policies and better policies lead to better outcomes. We have a lot of ideas on what we can do to improve the economy and make it more inclusive [00:01:30] and broadly prosperous for everybody, but really none of that really matters if our planet is blowing up, right?

Nick Hanauer: Yeah. Or if you can’t take those ideas, the abstract economic ideas we’ve been talking about and instantiate them into policies and politics. One of the ways in which it can be instantiated into policies and politics is by doing something like addressing climate change.

David Goldstein: Right. Because it doesn’t [00:02:00] matter how high your wage is, if your cities are flooded and your fields are …

Nick Hanauer: Yeah, and the planet is on fire. Right exactly.

David Goldstein: Right. So, really in the end it’s all about if the purpose of economics is to broadly improve the lives of people, which is our one normative claim and our planet, our climate is actually going to hell, there’s not much of an economy.

Nick Hanauer: That’s right and I mean, climate change is both an end in itself, but it also becomes a really [00:02:30] great way of seeing … then the fight over climate change becomes a really great way of seeing how neoclassical economics and neoliberalism leads you down the wrong path. That if you accept all the frameworks of neoclassical economics, that the only thing that matters is self-interest. That if justice goes up, prosperity goes down, that price equals value.

Nick Hanauer: All of that stuff what it does is it massively constrains your ability to take new big [00:03:00] things like climate change. This is why the sort of neoclassical economics is all bound up in these bizarre, self-limiting, cost-benefit analysis of whether we should address climate change while putting aside the existential threat of the problem.

David Goldstein: Right, because there is no room for an actual earth inside those fictional models.

Nick Hanauer: Exactly, that it doesn’t matter. So today we’re really fortunate [00:03:30] to get to talk to an old friend, a good friend, the governor of the state of Washington, Jay Inslee, who is running for president on the issue of climate change.

David Goldstein: Right, and the only candidate running on that issue as the top priority.

Nick Hanauer: Right. It’s cool to get to talk to Governor Inslee for a couple of reasons. First, his presidential candidacy is really interesting and fun and his commitment to climate change. I think, distinguishes him from the field. But the other [00:04:00] really cool thing for us, Goldie, as Washingtonians is that Governor Inslee gets to go out and tell the story of this Washington contrasted with the other Washington because in this Washington, we have really successfully addressed a lot of the problems that the country faces. We have raised wages, we have improved people’s access to a better life in a broad variety of ways, and our state’s [00:04:30] economy, it leads the nation in job growth, in wage growth, everything. If you look at where Washington and where King County, the biggest county ranks in all of the economic statistics, it is either the number one or number two and has been for half a-

David Goldstein: Right. Yeah, for years now.

Nick Hanauer: For years and years and years.

David Goldstein: Quarter after quarter you look at those results.

Nick Hanauer: Exactly, fastest rates of small business job growth, fastest rates of wage increases, which just goes to show that we are being successful, not in spite [00:05:00] of the progressive policies that we’re enacting, but because of them. [crosstalk 00:05:04]-

David Goldstein: Right. Facing dollar minimum wage-

Nick Hanauer: That’s right.

David Goldstein: … paid sick leave, paid family leave, secure scheduling, all of those job killers.

Nick Hanauer: Plus, the most robust voting system really probably in the nation. We can go on and on, but again, these policies sort of contrary to the orthodoxy don’t retard the rate at which the economy goes, they actually propel the rate at which the economy [00:05:30] grows, so they are the cause of success. And nobody will be a better storyteller on that than our governor, Jay Inslee. [inaudible 00:05:37] Yeah.

Nick Hanauer: Were you on Fox and Friends?

Jay Inslee: This morning, yeah, I was on.

Speaker 8: [crosstalk 00:05:46].

Jay Inslee: 5:00 A.M.

Nick Hanauer: Yeah.

David Goldstein: You were on Fox and Friends?

Nick Hanauer: Yeah.

Jay Inslee: That’s it. I released my tax returns. I said, “I’m doing this on the president’s favorite TV channel [inaudible 00:05:51] challenge him to do the same.”

Nick Hanauer: All right. Here we are, and here we are in particular with our old friend, governor of Washington, [00:06:00] Jay Inslee. So welcome to Pitchfork Economics, Governor Inslee.

Jay Inslee: Thank you. I’m glad we have the best tines in the business at the Pitchfork [crosstalk 00:06:09].

Nick Hanauer: Yes, exactly. They ring so beautifully.

Jay Inslee: Yes.

Nick Hanauer: I’m joined also by my colleague David Goldstein.

David Goldstein: Welcome.

Jay Inslee: Thanks Goldie.

Nick Hanauer: So today we wanted to talk to the governor who hopes not to be governor in the future and to be president of the United States, mostly about the issue that sort of frames his campaign, [00:06:30] which is climate change. In particularly, we wanted to expand on how climate change really isn’t the narrow issue that some people think of it as, but rather is first of all an existential issue, but an issue that is broad and touches a lot of the issues that other people care about.

David Goldstein: Yeah. Explain why you are not a single issue candidate when you run on climate.

Jay Inslee: Well listen, we know a scientific fact that we are the first generation to feel the sting of climate change, and we are the last generation that [00:07:00] can do something about it, and this is an urgent matter. We have exactly one shot to get this done. A lot of things in life you could put off 10 years or 20 years, you can not put this off because the next administration is the last chance to really fundamentally save us from the cataclysmic results of climate change. So when you have only one chance, you need to take it.

Jay Inslee: The reason this is such a universal issue is that it touches everything in our lives, every place in the United States. [00:07:30] We cannot solve our multiple desires and challenges unless this one is resolved because without a healthy system to support you, you can’t solve your other problems. So it is not one issue. It is all issues.

Jay Inslee: You know what? Even if it was one issue in one regard, if you wanted to look at that way, look on December 8th, 1941, the morning after Pearl Harbor, would people have accused Franklin Roosevelt of being single-issue president? This is an existential threat, but it is a threat to the basic stability [00:08:00] of our nation. We have to have a president who will call the better capabilities of this country for us to defeat this beast.

David Goldstein: Yeah. I want to know, let’s be practical here. I mean, sure, it’s an existential crisis, but how can we afford to save the planet and still give a giant tax cuts to Nick? I mean, what’s the priority here?

Nick Hanauer: Yeah, yeah.

Jay Inslee: Well, first off, let’s be practical. Let’s not allow the destruction [00:08:30] of the nation. That is a practical thing. Look, when your house is on fire, you got to grab some buckets and put the fire out. Our planet literally is on fire right now, figuratively and literally. So it is a practical response not to allow your house to burn down. People say this is sort of a unicorns and rainbows. No, it’s whether you’re going to have a place to live. So this is a very practical thing to do. Even if you have questions about how bad this is going to be, you buy insurance for your house. This is an [00:09:00] insurance policy as well.

Jay Inslee: As far as Nick’s tax returns, look, this is also a way to bring more justice to our society, and this is really important. We know that income and equality is a huge justice issue in our society. This is a way to embed … What I think of it is, we have to make a transition to a decarbonized economy. In doing that, we need a just transition, not just a transition. We have to build a clean energy economy that focuses on helping [00:09:30] frontline communities, marginalized communities. We know that the first victims of climate change are usually people in poverty, communities of color, and we have to build a just transition to focus on that, to use this as a tool to bring more income equality rather than income inequality.

Jay Inslee: There’s many ways you can do that. So this is not just an environmental issue, it is an economic issue. It as a social justice issue. I’m really pleased that people are starting to think of it in these terms. It’s going to help us get this done.

Nick Hanauer: Yeah, and if I might suggest, [00:10:00] I actually don’t think of your campaign or climate change as an issue so much as an organizing principle. It’s simply a way of organizing your thinking around addressing the biggest problems facing the nation. You know you can come at political economy in one way, or you can come at it another way, and using climate as the organizing principle, may be the best way to come at all these issues given [00:10:30] the intersection of the climate crisis, and the need to transform our economy in all sorts of important ways and to bring more justice to it and more fairness.

Jay Inslee: Well that is the term I use. You used it as an organizing principle for the campaign. That’s exactly the language I use, that we have to have this as an organizing principle for the whole federal government. Meaning you can’t just have one little agency checking the box and deal with this issue. You have to embed this as an organizing tenet [00:11:00] of your governing philosophy.

Jay Inslee: I’ll give you an example. So tax policy. This isn’t just an environmental issue, it’s a tax policy. One of the first things we need to do is to stop raiding Americans’ pockets to shell out $27 billion in tax subsidies to the fossil fuel industry. We need to end that gravy train right now and redirect some of those funds into research and deployment of clean energy and helping consumers get access to clean energy. So it’s tax policy, it’s health policy, it’s national security [00:11:30] policy. You have to embed this throughout your administration to get this done.

Jay Inslee: The central thing I’m saying in my campaign is this has to be job one. This has to be the first, foremost and top priority of the United States. If it is not job one, it won’t get done because you have to be able to willing to spend the political capital, build the mandate during your campaign to carry it in to make it a real governing philosophy. This is one thing that separates me from the other aspirants to this. [00:12:00] I’m the only person who’s saying this, who recognizes what you have to do to actually get this job done.

Nick Hanauer: Yeah. So bringing this whole conversation from the very abstract to the concrete, a long time ago, if we had one forest fire a season, that was a big deal, and we scrambled to deal with it. Last year we had 1800 forest fires. This year we’ve already had 50 a month before the teams were even stood up to begin to fight them.

Nick Hanauer: Here’s the thing, [00:12:30] is that our society is already spending hundreds of millions or billions of dollars dealing with this crisis in a backwards ad hoc way, in the same way that we’re already spending money on climate change to deal with the flooding that’s happening in the Midwest or the cycle loans that are happening around the world. The question isn’t whether you’re going to spend the money to deal with it or not. The question is whether you’re going to organize yourself to prevent the catastrophes and actually extract value [00:13:00] from that process or just deal with the crap that comes as a consequence of it. So for a tiny little bit of money upfront, we can address a climate change issue, save property, clean the air, generate a new industry and everybody’s better off. Right?

Jay Inslee: Yeah.

Nick Hanauer: It’s like if you did that at the national scale, then we’d be in business.

David Goldstein: That gets to I think one [00:13:30] of the challenges facing us is, there’s a lot of money and power opposed to doing anything about climate because they profit from the system the way it is. How do we address that part of the political challenge?

Jay Inslee: Well, first off, you say you’re not taking money from the fossil fuel industries, and I made that pledge. So that’s the first thing.

Jay Inslee: Second you say you’re going to stop this gravy train with these giant billion dollar efforts. Third, you fight back against their misinformation campaign.

Jay Inslee: [00:14:00] Look, they have been running the same campaign the tobacco industry ran for decades. It’s been, unfortunately, partially effective, but now we are turning the tide in public opinion, both because people are seeing these disasters firsthand and they’re also seeing the job creation that’s happening right now.

Jay Inslee: Jobs in the clean energy sector are now growing twice as fast as the US economy. The number one fastest growing job today is in solar installer. Number two is in wind turbine technician. There are [00:14:30] a hell of a lot more jobs in fighting climate change than there is in denying climate change and that’s happening all across the country.

Jay Inslee: Look, you can’t turn over a rock where we don’t have clean energy jobs being created in batteries in Nevada, in wind turbines in Iowa. The fact is, we have these products available made by American workers. In fact, the same day Donald Trump held one of his crazy rallies in Michigan saying that this is a disaster-

Donald Trump: Hillary wanted to put up wind, wind. [00:15:00] If you have a windmill anywhere near your house, congratulations, your house just went down 75% in value and they say the noise causes cancer. You tell me that one. The thing makes [inaudible 00:15:14]. Of course it’s like a graveyard for birds.

Jay Inslee: General Motors said, “We’re adding 400 new employees making electric cars.” Every major auto manufacturer is now going to have a line of electric cars. So I think that this is a message that resonates with the optimistic [00:15:30] version too. We haven’t talked about this from kind of an emotional standpoint yet, but I do believe that this resonates with the American character. That we are fundamentally an optimistic can-do people, we are the most innovative people in the world. We’re can-do people. Trump’s pessimism is not part of who we are as a nation.

Nick Hanauer: Yes, yeah, for sure.

David Goldstein: You’ve talked about this as a moonshot. When you’re out there campaigning, do voters still believe in America, that we can do big [00:16:00] things like this? Big challenges? Rise up to it?

Jay Inslee: They do. I think that fundamental character is there, but you need a spark. It’s like an [inaudible 00:16:08], so you need a spark. You need presidential leadership to create this vision, to give people hope.

Jay Inslee: When I was in Seminole springs, one of the things they said, “Hey, you’ve brought a little hope to our community.” Presidents seem to do that. I saw this in my own life when Kennedy says, “We’re going to the moon and back in 10 years.” So I think that spark is what the nation needs right now.

Jay Inslee: I think the nation will respond. The public perception of this is [00:16:30] changing dramatically. What used to be a graph on a chart is now a picture of a town that’s burned down. So the public perception is ready for this if we have that inspiration. I think frankly, American has had a bellyful of the fear and insecurity of Donald Trump.

Jay Inslee: People have said, “Well, Geez, you know we can’t decarbonize the economy in 10 years” and they want to quibble about timelines. I mean, when Kennedy said, “We’re going to the moon in 10 years”, did anybody sit around and say, “Oh no, I think it’ll be 11 and a half [00:17:00] so let’s not go”? No, we want to push the go-button on this revolution.

Jay Inslee: We know it can happen. We know it’s going to be a hugely productive thing economically in jobs. We know it’s going to be good for our kids, and it’s a moral thing to do.

David Goldstein: So let’s get into a little bit of the specifics. We hear a lot Green New Deal. You’re running on climate, you want to make it the top priority. You’ve talked about how we need to shift from a carbon economy to a carbon-free economy. Whenever you have big [00:17:30] disruptive changes like that in the economy, there are winners and losers and that’s what keeps a lot of people fear that they’ll be the losers. What do we do to prevent there from being losers so that everybody comes out of this a winner, not just in a cleaner, safer planet, but also economically, the out-of-work coal miners, the folks in the fracking fields and so forth, to be able to reassure-

Nick Hanauer: The senior executives at Exxon.

David Goldstein: Yeah, I’m not as [00:18:00] worried about them, but sure, even the senior executives at Exxon. How do we make sure that there is economic justice and inclusion in such a disruptive program?

Jay Inslee: Well, you think about it, number one, and we think about doing everything humanly possible to smooth any such transition and difficulties. So that means you focus on making investments in communities that might have that type of dislocation. You focus on your infrastructure investments in those communities that might [00:18:30] have that dislocation. You focus your education and training opportunities to really embrace people and put your arms around them and give them every single scholarship under the sun.

Jay Inslee: You create tax systems that help communities that might have difficulty in that regard. So you do all those things that will, as I’ve talked about, to have a just transition, not just a transition. But if you really think about it, when you look backwards in time, and you say, “Did the transition from the horse-drawn economy [00:19:00] to the steam engine really destroy a lot of lives?” It really did not. One of the reasons it did not is, it didn’t happen over a 24-hour period. This is not going to happen over a 24-hour period. I don’t think anyone now would say, “No, we should not have gone from horses to steam engines because we will have some transition.” We are all going to have better lives ultimately by going through this transition. I am convinced of it.

David Goldstein: [00:19:30] Right. I mean, literally the transition from horses to internal combustion was a 20-year period. It happened two decades.

Jay Inslee: Yeah, and it’s … We’re talking about over a several decade period, decarbonizing the US economy. Now it has to be several decades rather than several centuries or our goose is cooked, and we’ve got to get started right now. If you look at the IPCC report, what they have made clear is we’ve got to start right now, we just do not have any more time.

Jay Inslee: By the way, this is one of the reasons why I think we need to end the filibuster because we are not [00:20:00] going to be able to move this through the legislature if we don’t end the ability of 40 Republicans to stop all progress. I’m the only candidate, which is actually a little shocking to me, who’s willing to say that, “Look, you’re not going to have health care. You’re not going to have a climate change. You’re not going to have anything as long as we give this senatorial privilege.” So far, I’m the only candidate.

Nick Hanauer: Yeah, by the way, it’s not 40. It’s one.

Jay Inslee: There you go. There you go.

Nick Hanauer: It’s one angry old white guy.

Jay Inslee: There you go. By the way, before I forget, [00:20:30] for those who might be listening to this, if you share some of my ideas, I hope you will help me get this message on to the stage during the first debate in June, which takes 65,000 people to send in somewhere between $1 and $5,600 to jayinslee.com. I hope those who are interested, if there’s anybody with a dollar in your pocket, iayinslee.com if you can send in a dollar to that, that will hopefully get us on the stage in the next debates. So thanks for that shameless plug. I appreciate that.

David Goldstein: I’m going to add to [00:21:00] that. Even if they’re not ready to support you-

Jay Inslee: Oh that’s great.

David Goldstein: … even if you’re not their first choice because you’re the only one who is running on climate and I’m afraid if you don’t get onto the stage in June, that’s going to send a message to all those senators that may be climate is something they don’t need to talk about.

Jay Inslee: I agree with that assessment. I think to have this flag on the debate and have it succeed is very important on the messaging part of this. Look, everybody says is checking the box on [00:21:30] climate change running for this on the Democratic side, but checking the box is not enough. So this is a unique position and I agree with you. It is important that that message beyond the stage and I agree.

Jay Inslee: Look, there might be multiple candidates you can send a dollar to that have these messages. I guess what you saying is that we will accept polygamy, not just monogamy in this situation. They’ll both be successful to make sure this is on the stage.

Nick Hanauer: What gives you confidence that you can get this kind of stuff done?

Jay Inslee: Well, a lot of folks have talked about the [00:22:00] things we’ve talked about, but it’s fairly rare of actually getting it done. I’ve been able to get a lot done in our state to help create a really an economic miracle in Washington, where we’re listed as the best place to do business by Business Insider Magazine and the best place to be an employee by Oxfam. That’s a really unique two-fer.

Jay Inslee: Look, we’ve got the best paid family medical leave in the nation, the most robust. We’ve had one of the greatest increase in the minimum wage, thanks to Nick and Goldie’s leadership that has demonstrated that we can [00:22:30] raise wages and actually increase jobs. Look, the place with one of the biggest wage increases in minimum wage is the state with the greatest job creation rate for goodness sakes. So this is-

Nick Hanauer: Yeah, these two things are connected.

Jay Inslee: This is a template for success as you’ve pointed out. They’re not a reason for failure, they’re the reason for success. So you asked why I’m confident we can do this is because we’ve actually done these things in Washington state. When everybody’s talking about in the Senate, we’ve done in my state. So I believe that we can expand opportunity.

Jay Inslee: Look, Donald Trump and his crew, [00:23:00] they couldn’t run a two-car funeral. It’s just ridiculous. So we need executive experience to get that job done.

Nick Hanauer: It is the [inaudible 00:23:06].

David Goldstein: I can’t believe you went to impose this dystopian economy on the rest of the country. I mean, what is the country going to do with a $15 minimum wage and high job growth, high wage growth? I mean that’s terrible. It’s communist.

Jay Inslee: It’s the nightmare that the Republicans all dread.

David Goldstein: Why is that? Can I ask you something? You’ve been in Congress, like particularly on climate, [00:23:30] do they really not believe in science?

Jay Inslee: So this is a interesting psychological discussion and I’ll just tell you my theory on this. Not really because it is self-deception. Republicans been self-deceived on climate. It is not for lack of scientific literacy. That’s the thing that’s stunning. You have Republican members of Congress who have become dentists, have become physicians. They had to take physics. They had to take chemistry. So [00:24:00] how is it possible that they would deny climate science?

Jay Inslee: It is pure self-deception because in their minds they think, “I have to deceive myself at least publicly because if I admit that this is a problem, we’ll have to have some community response to it.” That will by necessity involve some governmental activity because we have to have some communal response to this and they can’t stand the thought of the community instead of giving $27 billion to their oil company buddies, [00:24:30] will actually help subsidize to some degree solar panel companies. They can’t stand that thought. So it’s a pure self-deception and it’s very regrettable because in the rest of the world, this is not a partisan issue.

David Goldstein: Right. Let’s be clear, $15 minimum wage, raising the federal minimum wage, that resonates, even in the heartland?

Jay Inslee: You bet. Sure it does. This as a huge success and support by the American people. They understand that. There’s other things that resonate. Decriminalizing marijuana resonates across the United States as well. Another issue where [00:25:00] politicians, particularly Republicans, are behind where the people are. I’m for catching up with where the people are, which is higher wages, more freedom and protection against intolerance. That’s a fundamental message that I think everybody can embrace, certainly our party. So I’m looking forward to it.

Nick Hanauer: Great.

Jay Inslee: Thanks guys. Don’t forget to vote.

Nick Hanauer: Yeah, this is a great conversation. Thank you so much for being here.

Jay Inslee: Thank you.

Nick Hanauer: Governor … president soon to be elected maybe?

Jay Inslee: Hey listen, you go to jayinslee.com and we make this happen.

Nick Hanauer: Okay. All right, thank you for coming.

David Goldstein: At the very least get [00:25:30] into that debate.

Jay Inslee: There you go.

David Goldstein: That’s the first step.

Jay Inslee: All right.

David Goldstein: So one of the things that’s heartening talking to Governor Inslee, Nick, is that we finally have a candidate who’s willing to commit to addressing what really is the number one issue facing us, climate change. Of course the attack on that is that that will be really, really expensive.

Nick Hanauer: It’s just like scrimp and save our way to annihilation. It’d be awesome.

David Goldstein: Right. We could, it just, it’s … think of all the sacrifices we’d have to make-

Nick Hanauer: In order to survive.

David Goldstein: … to save the planet. But if you remember in Episode 20, Nick, we talked with Professor Stephanie Kelton about modern monetary theory. Weirdly, that does provide an answer to [00:26:30] how we might pay for it.

Nick Hanauer: That’s right. Today we get to talk to another sort of remarkable thinker, Dr Fadhel Kaboub, who is a professor of Economics at Denison University, and is one of the sort of leaders in thinking about how we generate sustainable prosperity. In fact, he’s the president of the Global Institute for Sustainable Prosperity.

Nick Hanauer: What’s really interesting is that when you think about economics in a new way, as Dr Kelton and Dr Kaboub do it, [00:27:00] gives you permission to think much more ambitiously about how to address these challenges.

David Goldstein: Better narratives, better opportunities.

Nick Hanauer: That’s right. That’s right. Doctor Kaboub is a very, very smart and interesting person who’s thought very deeply about these challenges.

Fadhel kaboub: Hi. My name is Fadhel Kaboub. I teach economics at Denison University in Ohio and I’m the [00:27:30] president of the Global Institute for Sustainable Prosperity.

David Goldstein: So we were fortunate enough to talk with Professor Kelton recently to have her explain the theory of MMT. We were hoping we could talk to you today about some of the more practical applications of it specifically in regards to probably the greatest challenge facing us now, which is climate change. We talked [00:28:00] with Governor Inslee, who is a candidate about his proposal to make climate the priority of his White House but it isn’t cheap what’s being proposed. Does MMT help tell us how to pay for these things?

Fadhel kaboub: Absolutely. Well, the first thing is, the current system isn’t cheap either. What MMT is proposing is really tackling some of the existing social problems related to inequality [00:28:30] and climate change problems. In terms of cost, yes, we need a massive intervention to restructure the economy. The way we produce electricity, the way we build things, the way we produce things, the way we transport things, it’s been long overdue. We’re not talking something that scientists discovered in the last decade or two. This has been on the radar screen from silent spring all the way to the IPCC record from a few months ago. So this is finally kind of a [00:29:00] collective recognition that something has to be done urgently, the clock is ticking.

Fadhel kaboub: Then the entire progressive environmentalist movement is saying, “Yes, this is important. It needs to be done, but can we afford it?” This is where MMT comes in and says, “Yes, we can afford it if we put in place a specific plan that allows us to tackle all the priorities, redress some of the structural [00:29:30] weaknesses in the economy that produce inequality, that produce poverty, that produce all kinds of negative social and economic effects. We can do it without causing inflation because we have the monetary sovereignty of the state, meaning the federal government in the case of the United States, that allows us to dedicate and marshal all the resources we have to achieving that.”

Fadhel kaboub: The best example I can think of, and a lot of people have been talking about this example, is how the United [00:30:00] States was able to marshal resources for World War II. We have to remember that World War II came right after The Great Depression, the most miserable time in US history and world history. There was no wealth to be taxed. There was no money to be borrowed domestically or internationally, and yet in a matter of months, the US was able to bring the economy all the way back to full employment and beyond without taxing [00:30:30] before the war and without borrowing before the war.

Fadhel kaboub: The tax rates went up during the war, the bond sale, the freedom bonds, and the war bonds were sold during the war, way after the productive machine was in full speed and people were getting wages. So the government used the sovereign power of the state, the power of the purse that Congress has, to spend money into existence to fund the national priorities. The national priorities [00:31:00] at the time was to win the war.

Fadhel kaboub: We have to restructure the economy massively. We had to shut down production lines in Detroit away from producing cars and into producing military equipment. We had to control prices to make sure that key commodities are directed towards the war effort. We had to bring women into the labor force, older people into the labor force to keep up with the productive capacity needs of the economy. [00:31:30] So it wasn’t simple, but it didn’t cause inflation. It didn’t cause hyperinflation. Yes, it did increase government spending massively, the deficit spending, the national debt, but it didn’t lead to all the things that mainstream economist tell you will happen in terms of inflation, hyperinflation, and a breakdown of the economic system.

Fadhel kaboub: From an MMT perspective, a sovereign government can always afford to spend on the national priorities, whether it’s healthcare or education or [00:32:00] a Green New Deal. What matters and where the limit is, is the inflationary limit. Inflation happens when we’re spending beyond the productive capacity of the economy, when we ran out of knowhow, when we run out of raw materials, when we run out of people who have the skills to do things, that’s when we get to the inflationary limit.

Fadhel kaboub: Today we’re not even close to that limit despite what the mainstream economist tell us, “We’re at full employment.” If we’re at full employment, let’s offer everybody [00:32:30] a job and see if nobody will show up, right? But that’s not the case obviously. There’s lots of [crosstalk 00:32:36]-

Nick Hanauer: Yes. Then you don’t have to worry.

Fadhel kaboub: … at least 60 million people unemployed today. Yeah. I mean the people who are worried about the job guarantee and say we’re at full employment then, [crosstalk 00:32:45] nothing to lose, right?

Nick Hanauer: Well, then you have nothing to worry about. No one will step up to half a job.

Fadhel kaboub: Exactly.

Nick Hanauer: Good point.

Fadhel kaboub: This is where we get to kind of the deep structural weaknesses in the economy that’s been building up over the last three, four decades with [00:33:00] the rising gap between wages and productivity is stagnation of wages for working class and middle class people, the massive accumulation of consumer debt and household debt, mortgage debt, student loan debt over the years. I mean this is the theme of the podcast. It’s pitchfork economics.

Nick Hanauer: Yes.

Fadhel kaboub: The clock is ticking when it comes to inequality, but also the clock is ticking when it comes to climate change. The beautiful thing about the Green New Deal philosophy [00:33:30] here is, that not only we can marshal the resources because we have renewable energy technology that’s available, it’s getting cheaper by the day. We have millions of people around the world who want to work and we have this climate crisis. The planet is on fire. Put all these three things on the table and the solution is right there except for how do we pay for it? Where does the money come from? This is where MMT’s contribution I [00:34:00] think is the most important thing.

Fadhel kaboub: Otherwise, if you ignore the MMT principle, then you’re left with one thing. But what are we going to tax? Who are we going to borrow from? There’s always going to be opposition to this. Are we going to tax the rich, the poor, the middle class? Or are we going to borrow from China? Then we’re stuck in this vicious cycle of mainstream economics of presumably our friends, the progressive, the environmentalist are also stuck in that mindset. MMT is offering [00:34:30] a new lens to think about the possibilities.

David Goldstein: So the Republicans never seem to worry about how we’re going to pay for their tax cuts or their wars are, are they secret MMTeers?

Fadhel kaboub: I don’t know about secret MMTeers, but they definitely know. I mean, they definitely know that these are not real constraints. It’s the Democrats who actually are obsessed with [00:35:00] the SPAGO system, right? Dick Cheney said it. He said, “Reagan proved that deficits don’t matter.” I wouldn’t call him an MMTeer or, but he definitely knows that when it comes to national priorities, the power of the purse is there, and if Congress approves the spending then the spending happens.

Nick Hanauer: I think you’re making some really interesting observations. I’m just going to play one of them back to you in a slightly less abstract way. I mean, health care costs in America or something like $3 trillion per year [00:35:30] on a $20 trillion economy but if America’s healthcare system were on the order of as effective as the other industrialized nations, it would be 65% of that or 60% of that. Right? So instead of spending $3 trillion a year on healthcare, we’d spend collectively $2 trillion collectively-

Nick Hanauer: Yeah, exactly. But I mean, just your inflation point, if [00:36:00] you addressed some of these underlying issues, wages can rise a lot and total costs may still come down because we have effectively addressed a bunch of these things. Obviously if people aren’t spending all this money on gas and healthcare, then you can afford to do a lot of other things.

Fadhel kaboub: Yeah. On the energy front, yes. We’re gonna spend a lot of money upfront to transform energy production and transportation in the US, but in the longterm, [00:36:30] you’re completely eliminating the inflationary pressure that we import because there’s a conflict in the Middle East or because of something happening in the Gulf of Mexico, some weather conditions that are destroying productive capacity, whatever. You’re completely producing a resilient energy and transportation system in the longterm. So this is how you address inflation. The Green New Deal will kill that inflationary pressure that’s driving inflation today. But we have to [00:37:00] go after those root causes of inflation.

Fadhel kaboub: Some of the critics say, “Well, why don’t you just do the Green New Deal like all the green stuff and ignore healthcare and leave the other stuff alone? We’ll do it later.” Well you can’t. If you have a broken car and it has so many broken pieces, you can’t just say, “Let’s just fix this part of the engine and then try to drive it.” It will not run. You have to fix everything in the system, and this is long overdue. Minimum wage is long overdue. Climate is long overdue. Healthcare as long overdue. So all of [00:37:30] it has to be done now. The clock is ticking and we can do it.

Nick Hanauer: Yeah, it’s so interesting. So one of the things that we devote a lot of time to the podcast too is sort of the generalized notion that there is so much about Orthodox economic thinking and neoliberalism that constrains our choices and essentially amounts to a protection racket for rich people. It’s a set of ideas that are sort of embedded in our policy making, [00:38:00] in our culture, that constrain us from doing things that benefit people broadly, but massively benefit people at the very tippy top, narrowly or the entrenched interests obviously. The good folks at Exxon most definitely aren’t in favor of the Green New Deal and will come up with all sorts of orthodox economic reasons for not doing so that we can’t afford it. In your work, how do you think about that?

Fadhel kaboub: Well I’m a political economist [00:38:30] by training, so you can’t really … Part of the mainstream economic strategy is to focus just on the kind of pure economic variables and leave all the other stuff for poets in the political science department or poets in the anthropology department. That all the other disciplines are in the social sciences are dismissed as not scientific enough. This is really the power of mainstream economics.

Fadhel kaboub: For example, I mean, what’s the top alternative to the Green New Deal that you hear [00:39:00] about today? It’s carbon pricing. It’s a very simple neoclassical model that says, “Here’s a market solution to dealing with pollution, to dealing with externalities.” It’s a small drop in the bucket and it’s still based on tax this to pay for that. Trying to put it in today’s system, we’re doomed. I mean there’s [00:39:30] no time. This is assuming that it passes in Congress. This is assuming it raises the revenues that they claim it does. This is the thing, the federal government doesn’t need tax revenues in order to spend. It’s not like you and I, it’s not like the local, state and municipality. So the idea of let’s find somebody to tax.

Fadhel kaboub: Now, MMT is not saying we shouldn’t tax pollution. We should tax pollution. Not because we need the money to spend on the Green New Deal, but because we want to minimize pollution and eliminate pollution. We [00:40:00] should tax gambling. We should tax speculation, not because we need the money, but because that’s an important thing to eliminate from the system and minimize from the system.

Fadhel kaboub: Same thing with taxing the rich and the ultra rich. It’s not because we need their money. The federal government doesn’t need anybody’s money. The federal government needs to tax in order to tame the inflationary pressure. We need to tax the super rich to save democracy from plutocracy, from oligarchy. That’s the purpose of taxation. It’s not because we need [00:40:30] the money to spend.

Fadhel kaboub: Same thing with all kinds of federal government spending. Do we say, “Who are we going to tax to spend on the military?” That never comes up. But when it comes to funding the Green New Deal, then who are we going to tax, and where does the money come from? Then the carbon pollution thing. So mainstream economics, especially the theory of money, which is you would think that by now, economists would have settled what is money and how does it work? That’s not true. This has been a [00:41:00] myth perpetuated for decades by generations of economists. The most important one of them is Paul Samuelson, who, his textbook has … Anybody who studied economics my generation or before or after, since the 1950s Paul Samuelson is the main thing.

Fadhel kaboub: So the story of money that he introduced in the book says, first there was barter, there was no money, and then that became very inconvenient. So people invented money and it’s people, not governments. So it’s the [00:41:30] private sector invented money. Then later on governments came in as participants like everybody else, which means the logic of spending is the same as everybody. It’s logic. Then he was asked later in his life where did that story come from? Is there a historical evidence for it? Anthropological evidence? He said, “No, I just made it up. It’s logical.” It is logical, but there is no evidence for it.

Fadhel kaboub: So it was the anthropologist and the historians and the archeologist who actually dig for physical evidence [00:42:00] about how money developed in different societies around the world, David Graber, who was an anthropologist, he wrote this book called 5,000 Years of Debt where he summarized essentially all the literature about the history of money. Dozens and dozens of cases around the world going back 5,000 years with actual evidence. Not a single one of those match the story that you read in economics textbooks. Every single case, dozens and dozens of cases from around the world, match the story [00:42:30] that MMT tells what money is, where it comes from and how it works.

Fadhel kaboub: The logic of every monetary system that we know of is the following, that government spends money into existence and then at taxes afterwards. We don’t tax before we spend unlike the rest of us users of money. So you take that one principle that neoclassical economics ignores and flips on its head and builds into every single textbook and [00:43:00] you get the mess that we have today with the popular logic that we have about taxing and spending and what we can afford.

Nick Hanauer: Yeah. So, yeah, we have to wrap this up, but I must say that towards the end of this interview, you said one of the really most interesting things that anybody has mentioned on the podcast recently, which is [00:43:30] that the point of taxation is not to raise revenue- I’m paraphrasing you- the point of taxation is to discourage things that are harmful to the society-

Fadhel kaboub: Exactly.

Nick Hanauer: … which is, obviously it’s more than that, but I think that that’s a really interesting point that one of the big reasons to tax extreme wealth is because extreme wealth is actually … Concentrated economic and political power is [00:44:00] unambiguously bad for human societies. The degree to which you can moderate it will be better for everyone, save a couple of people who disagree at the very tippy top, but and that-

Fadhel kaboub: They’ll be fine. They’ll be fine.

Nick Hanauer: Yeah, they’ll be fine. No, I can tell you personally we will be fine, but it’s a really interesting point and something we should revisit and talk about in a broader way sometime. It’s really fascinating.

Fadhel kaboub: Absolutely.

Nick Hanauer: Well, listen, thank you so much for spending some time with us.

Fadhel kaboub: Thank you.

Nick Hanauer: It’s a very [00:44:30] interesting discussion.

Fadhel kaboub: My pleasure.

Nick Hanauer: We hope to talk to you again soon.

Fadhel kaboub: Absolutely. Anytime. Thanks for having me on the show.

Nick Hanauer: Thank you. Thank you.

David Goldstein: Thank you.

Nick Hanauer: So I was really struck by how precisely Dr Kaboub has thought about these issues and the way in which MMT intersects with them. He was such an interesting reminder of how we actually have done this before, we simply spend into [00:45:00] existence the entire capacity for our war machine going into World War II. In fact-

David Goldstein: That’s a great … and it’s a great comparison because defeating fascism was an existential crisis for our country-

Nick Hanauer: So we just did it.

David Goldstein: … and we just did it. Combating climate change, what? That’s too much?

Nick Hanauer: Yeah. No. What’s interesting of course, is that [00:45:30] we just did it in World War II and the country was better off for it unambiguously. I mean, we built an enormous amount of productive capacity. Means that it’s a shame, of course, that we had to fight the war. That wasn’t good, but ramping the economy up out of the depression and building all of this remarkable capacity and putting all these folks to work, generating all this new technology, that benefited the country for [00:46:00] decades, for a couple of generations. There’s a similar opportunity to do the same thing today with respect to climate change.

David Goldstein: Of course, we don’t want ramp inflation to get out of control like it was in the 1970s before most of our listeners were born, but if inflation starts to rear its ugly head, then we can raise the taxes or cut back the spending. But until then, as [00:46:30] Professor Kaboub points out, and I think you mentioned it as well, orthodox economists have done a pretty crappy job of forecasting inflation.

Nick Hanauer: Yeah. Terrible. I think he made a very good point, which is that certainly within the framework of the Green New Deal, you’re addressing a bunch of the factors within the economy, including healthcare, that drive most of the inflation that we currently have. So by addressing [00:47:00] those things, even if some of the green energy-focused things drive higher prices, if you brought the price of healthcare down significantly, well then there goes your inflation.

David Goldstein: Right, and that gets back to what Governor Inslee was talking about. He’s not a single-issue candidate because climate is a healthcare issue. It’s an economic issue. It’s a jobs issue. It’s a housing issue. It’s an education issue. To actually solve climate we have to solve all of these problems [00:47:30] at once.

Nick Hanauer: Exactly.

David Goldstein: On the next episode of Pitchfork Economics, Nick and I talk with economist Sam Bowls about why Homo Economicus must die. Bump bump.

Speaker 4: Pitchfork economics is produced by Civic Ventures. The magic happens in Seattle in partnership with [00:48:00] Larj Media. That’s L-A-R-J Media, and the Young Turks Network. Find us on Twitter and Facebook at Civic Action and follow our writing on medium at Civic Skunk Works.

Speaker 4: You should also follow Nick Hanauer on Twitter at Nick Hanauer. As always, a big thank you to our guests and thank you to our team at Civic Ventures; Nick Hanauer, Zack Silk, Jasmin Weaver, Jessyn Farrell, Stephanie Ervin, David Goldstein, Paul Constant, Nick Cassella and Annie Fadely. Thanks for listening.